Economic Logic, Too

About Me

I discuss recent research in Economics and various events from an economic perspective, as the name of the blog indicates. I plan on adding posts approximately every workday, with some exceptions, for example when I travel.

Thursday, March 21, 2013

It is well known that the underground economy in Italy is substantial, and that an important share of this is due to illegal activity. Hence, there should be an important amount of money laundering going on, an amount that seems to be impossible to measure given that these activities precisely try not to get detected. But economists can be resourceful and try to pull it off, for example à la Steve Levitt.

Guerino Ardizzi, Carmelo Petraglia, Massimilano Piacenza, Friedrich Schneider and Gilberto Turati try to pull that off, reasoning that money laundering is performed by depositing cash, and that if there are more cash deposits in financial institutions of an Italian province where there is more activity from illegal syndicates, one should be able to back out how much of these deposits are due to money laundering. Concretely, they regress across provinces over four years cash deposits on a few controls, the number of detected extortion crimes and the number of drug dealing, prostitution and possession of stolen goods. One may have some qualms in using detected crimes, which may be a very poor proxy for actual crime, especially for a country that is so corrupt, but I suppose this is all we have. However, this regression assumes that those illegal syndicates stay within the confines of their province when they deposit their proceeds. Given the size of an Italian province (median inhabitants: 375,000), that seems like a real stretch. I guess we still do not know how much money laundering is going on in Italy.